Lagardere Stands Up Against EADS/BAE Systems Merger

EADS and BAE Systems are facing even stronger headwinds for their merger plans ten days ahead of the Oct. 10 deadline, with the CEO of major EADS shareholder Lagardere issuing a public statement demanding significant changes to the negotiated arrangements.

Lagardere CEO Arnaud Lagardere says that “despite the industrial and strategic logic attributed to it, this plan has not yet demonstrated that it was creating value for EADS.” Therefore “Lagardere considers that the merger conditions between EADS and BAE Systems are currently unsatisfactory.”

He says he invites “the executive management of EADS to proceed immediately with an indispensable review of the tie-up plan of EADS and BAE, taking better into account all of the interests of the French reference shareholding in EADS.”

Lagardere taking such a critical position publicly could be the fatal blow for the proposed merger. The media group owns 7.5% of EADS and represents the French interests. Lagardere has a veto right to block the merger. He indicated years ago that he wants to sell his stake, so there is a tactical element in his statements.

But there are other hurdles, too. The French and German governments appear to have agreed on the future shareholding in the combined group; they want to control 9% of the combined EADS-BAE Systems and hope to convince the British government to accept that position. But sources close to the talks say that such a proposal is unacceptable to the U.K. And it is also not acceptable to EADS management under CEO Tom Enders. The German government also wants one of three headquarters to be based in Germany.

Separately, Enders and BAE Systems CEO Ian King published an op-ed in several European newspapers on Monday trying to again make the case for the merger. “With the necessary political will and support, management determination, and proper governance, BAE Systems and EADS can produce a whole that is greater than the sum of its parts,” they wrote. “Together, we would become a business with a global footprint, and a wider customer base.”

They also want “governance structures which would enable it to operate in a normal commercial manner and which confers the same rights on all shareholders, large and small.”